Applica'on of RBF in the PAF and Cooking Stoves. Felicity Spors & Nuyi Tao Climate and Carbon Finance Unit World Bank June 2, 2016

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1 Applica'on of RBF in the PAF and Cooking Stoves Felicity Spors & Nuyi Tao Climate and Carbon Finance Unit World Bank June 2, 2016

2 When is RBCF an appropriate policy choice? First choice is whether it is necessary to incen/vize good low carbon behavior/ac/vi/es or penalize bad carbon intensive behavior/ac/vi/es. E.g. RBCF or Carbon Tax or legisla/on. RBCF provides incen/ves and can be effec/ve to address: Market imperfec/ons (Externali/es, informa/on asymmetry, market power, co-ordina/on failures, public goods etc.) by delivering subsidies; and Improving the efficiency of procurement.

3 When is RBCF an appropriate policy choice? Cont.. Objec'ves must be clearly defined Objec'ves must convert into indicators Recipient must have capacity Results can be measured A program design must be defined according to clear policy objec/ves and specific circumstances of the country and sector is key. Selec/ng suitable indicators to measure progress towards the objec/ves is a key prerequisite for a results-based financing program to deliver the intended outcomes. As RBF foresees recipient discre/on as to how results are achieved, the ability of recipients to respond to incen/ves from RBF is another important condi/on for effec/ve programs (access to capital for upfront finance, reasonable control on how to achieve results, and capacity to assume risk). RBF schemes require a monitoring system that allows for transparent third-party verifica/on of results. (Delivering RBF Through Credi4ng Mechanisms, Öko-Ins4tut e.v 2015)

4 The Pilot Auc'on Facility for Methane and Climate Change Mi'ga'on (PAF) Objec'ves - prevent climate change through mi'ga'on Indicator is the delivery of 1tCO2eq. Capacity - The PAF currently u'lises CDM pipeline stranded assets Results can be measured using exis'ng CDM/VCS/GS standards

5 How the PAF works and the RBCF component within it PAF delivers payments for CERs (the result) via put op'ons which are sold in an auc'on. Put op'ons are a price guarantee and are purchased by the private sector who have the right but not the obliga/on to redeem them. Put op/ons may be sold to other eligible companies if an ac/vity underperforms. Auc'ons can be used to resolve uncertain/es in markets iden/fying projects most likely to succeed and giving value to goods or services that are hard to price i.e. tco2eq. The Pilot Auc/on Facility auc/ons have been used to set the strike price the amount paid for each guarantee and for the premium the price charged to par/cipate in the auc/on. RBCF component - PAF only disburses funds once tco2eq. results have been verified by a third party.

6 RBCF for cooking stoves Objec'ves - prevent climate change through mi'ga'on energy efficiency and preven'on of black carbon AND contribute to sustainable development gender and health Poss. Indicator - Percentage of households primarily using clean and efficient cooking fuels and technologies. Capacity U'lise remote monitoring op'ons for surveys. Purchasers administrator must use methodologies to convert indicators into CO2eq, Gender equality, health. Results can be measured

7 RBF for Efficient Clean Cooking and Hea/ng (ECCH) Why ECCH? o Three billion people rely on solid fuels, such as wood or coal, for cooking and hea/ng, causing severe health, environmental and climate impacts o US$4.4 billion of annual investment needs to increase access to ECCH solu/ons at scale Posi/ve track record of carbon finance to a`ract private agents and financing o ~340+ registered Gold Standard and CDM projects and PoAs on efficient clean cooking. A total of $162 million from sale of carbon offsets was mobilized for the efficient cooking sector in the voluntary carbon markets from 2007 to 2014 Lessons learned from carbon finance applica/on on clean cooking o Carbon finance projects have been effec/ve in increasing technology penetra/on, but less effec/ve in introducing behavior change and market transforma/on. o Requires quality, reliable, verifiable data on targeted benefits. Data collec/on can be costly, some/mes resul/ng in misrepor/ng and requiring surveys to be repeated 7

8 Moving forward in RBCF applica/on on ECCH Why consider RBCF approach now? o Recent methodological and field work to measure and quan/fy the impacts of ECCH interven/ons on climate, health, and gender; o Technological improvements in cook stove design and remote monitoring. What would a new RBF approach for ECCH involve? o Development of widely agreed methodologies to measure health, gender and addi/onal climate benefits (from black carbon emission reduc/on); o A robust process for independent, third party verifica/on of the impact-level results; o RBCF can establish market price signal even without func/oning carbon markets o Providing adequate technical assistance to create the enabling policy and regulatory environment for market transforma/on. 8

9 THANK YOU FOR YOUR ATTENTION

10 How it works: Step-by-step 10